Blockbuster looks to profit from DVD
‘Priced-for-rental’ benefits video retail stores, not present consumers

I find it very ironic that Blockbuster Video has been heralding their support for DVDs in recent months. On the surface, it seems that Blockbuster is very supportive of this new video format, with all of its stores offering a new “30 DVD rentals over 30 days program.” Unbeknownst to most consumers, Blockbuster has been secretly trying to persuade motion picture studios into making all future DVD releases “priced-for-rental.”

To explain the concept of priced-for-rental videos, consider the following example. Currently, if you went down to your favorite video store and tried to order a VHS copy of your favorite new release, let’s say “The Hurricane” in this case, you could expect to pay around $99 to $120. Wait a second, that’s a ridiculous price to pay for a VHS movie when you can go and buy the DVD (which contains a much more superior version of the film) for around $20, right?

The reason behind the price difference stems from the mid-80s when Blockbuster helped to capitalize on a home-video revenue scare that movie studios were facing. At that time, most people rented films because there were not any outlets to buy videos like there are now. The studios were becoming afraid that they would lose money if they allowed new VHS releases to be purchased by video retailers for a relatively small price — thus, a significant price hike occurred.

Since that time, Blockbuster has been reaping the benefits of the VHS priced-for-rental market. However, Blockbuster is starting to catch the wind that times are changing for the home-video market and that DVDs are here to stay. Unlike VHS in the 1980s, consumer studies have shown that more people are currently buying DVDs than renting them. In a resulting panic, Blockbuster is hoping to keep their stranglehold on the video-market arena with a priced-for-rental DVD plan.

While this proposal may significantly benefit Blockbuster, it creates two major consequences elsewhere. First, according to the Consumer Electronics Association, there are nearly 15 million DVD players residing in U.S. homes since its introduction in 1997, which makes DVD players the fastest selling consumer electronics product ever. Nevertheless, DVD still has a long way to go before it completely saturates the country and replaces VHS. Therefore, if Blockbuster’s ideas were to be implemented, the advantage of purchasing new DVD releases as soon as they are released would cease. This advantage currently remains one of the top reasons to adopt DVD technology. If it were taken away it would be harder to have the technology continue to succeed as well as it has done economically.

The second problem is rental pricing centers. Blockbuster has established a deal with movie studios called revenue sharing. For years, revenue sharing has helped Blockbuster run so-called mom-and-pop video stores out of business. Essentially, studios implement revenue sharing with Blockbuster by allowing the company to purchase videos at a very low price. Since Blockbuster is a chain that typically orders a sizable number of videos, the low price allows Blockbuster to further expand that number and, in turn, increase the total rental revenues that studios receive.

Smaller, independent video stores typically are unable to participate in such a program because it is not cost-effective for their means. The current low price of DVD releases is helping smaller video stores compete with the giant video chains that use revenue sharing, primarily because revenue sharing presently only applies to VHS sales.

On the other hand, if DVDs were priced-for-rental, DVD-revenue sharing would certainly become a big business, and independent video stores would lose what little foothold they have gained.

It is strange to think that independent stores were carrying DVD rentals long before Blockbuster jumped on the bandwagon. In light of this, it would be a despicable move for studios to go along with a company that only recently started helping them out, and leave the true backbone of the DVD movement in the dark.

Through public pressure and common sense, the studios will realize that Blockbuster is only looking out for itself with the rental pricing system. Until that time comes, be sure to laugh when you hear those commercials implying that Blockbuster is “your” DVD source.

Robert Davis is a senior computer science major from Garland. He can be reached at (r.d.davis@student.tcu.edu).

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